Crowdfunding Is Now Big Enough to Require a Shadow Services Industry

By Erin Griffith , written on July 19, 2012

From The News Desk

Following the passage of the JOBS Act, a flurry of new crowdfunding sites launched. Or announced plans to launch. Or announced an idea that might, eventually, someday launch. Crowdfunding is the biggest thing since ARPA-NET, the message went.

But that's died down, following the news that organizations like the SEC and FINRA weren't especially thrilled with the idea of regulating so many smaller financial institutions. The logic went that crowdfunding is just a Ponzi scheme-in-the-making. See yesterday's post on how the JOBS Act could theoretically end up hurting the entire startup economy.

And as we reported last month, crowdfunding is so mired in red tape and regulatory nitpicking that it's not likely to become available until 2014 at the very earliest, due to conflicts of interest at FINRA and the slow-moving bureaucracy of the SEC.

No matter. Now new startups are forming to deal with what happens after a company or product is crowdfunded. Today a company called CrowdHut launched in private beta, backed by Philip Reicherz, an early employee of late-stage equity marketplace SecondMarket.

CrowdHut is an ecommerce platform that helps crowdfunded companies start selling their products of services once they've raised a successful round of crowdfunding. CrowdHut platform includes free PR services, advertising, group discounts in fulfillment and shipping, and expert advisors on growth strategies. These services are helpful for any startup, regardless of how it raised money, so the focus on the crowdfunding niche doesn't really seem necessary. But no matter! Crowdfunding is going to be huge.

I will say this: the logistics problem CrowdHut aims to solve is definitely real for successful Kickstarter campaigns that involve products. Companies behind record-breaking funding for items like the Pebble watch and the Elevation Dock often find themselves in a bit of a bind -- they've been making their gadgets by hand and ordering their supplies in small amounts. Their campaigns promise a finished product to backers -- with millions raised, they suddenly have to figure out how to make and ship thousands of watches, or robots, or iPhone chargers. That's messy, especially for first-time entrepreneurs who've never sourced manufacturing from China.  If CrowdHut can solve that problem, that's awesome.

But that's for the kind of crowdfunding that's already legal, and there are only so many runaway Kickstarter success stories to provide support services to. According to the company, CrowdHut is also banking on the JOBS Act-anointed crowdfunded startups becoming a big source of business.

"With the recent passing of the JOBS ACT, industry experts believe the total dollar amount raised and number of successful campaigns will double in 2012. With anticipation of these increases, CrowdHut will focus their sales and marketing efforts initially in North America and Europe," the company said in a statement.

Sadly for the company, if regulators have anything to do with it (and they do), CrowdHut will be waiting awhile. It'll have plenty of robots, watches and phone docks to help in the meantime.